The stock market has been struggling to make headway for the past couple of weeks as it alternates high volume distribution days with sharp bounce backs the following day. Overall the markets remain in a trading range, but several market leaders have been under pressure recently. This could be a precursor to a more prolonged correction, and some stocks are starting to look like they have topped on intermediate term timeframes.
For instance, Ctrip.com International, Ltd. (Nasdaq:CTRP) recently broke under its rising 50-day moving average. While CTRP remains above its 200-day moving average and surprisingly close to all time highs, it is also showing some near-term weakness. It is close to breaking down from a small head and shoulders pattern that could lead to an intermediate top being put in near $42. If it breaks under $36, the next levels to watch for support would be near $34 and $30 as highlighted on the chart. (For more, see Price Patterns Part 2: Head And Shoulders.)
Computer Sciences Corporation (NYSE:CSC) is another stock that has been experiencing some weakness in the near term. CSC has already dropped $4 in the past few sessions, but the more serious implication is the formation of a lower high on the daily chart. Notice how CSC traded over $58 in December and on the subsequent rally in April, CSC was only able to trade to $56 before succumbing to selling pressure. It then sliced under its April low which should lead to a test of major support near $50. If CSC can't find support in this area it would complete a much larger top that would have serious implications for it.
Adobe Systems Inc. (Nasdaq:ADBE) has also been under pressure recently. Much of the negativity surrounding this stock revolves around Apple Inc.'s (Nasdaq:AAPL) continued refusal to support Flash on its devices and the possibility that another competing technology will surface as the leader for mobile devices. While its difficult to gauge the impact of this issue on ADBE, the chart does reveal some weakness in the stock. ADBE also set a lower high earlier this year and recently broke under its 50 and 200-day moving averages. There has also been an increase in selling volume and ADBE looks like it is headed for a test of its 2010 lows near $32. This will be an important level for ADBE as a failure here also has more severe implications.
AFLAC Inc. (NYSE:AFL) is a stock that has been trending in a clearly defined channel and is in the process of testing the lower boundaries of this range. AFL has been able to recover on the last few breaches of its 50-day moving average back in November and February, but this last breach has also been accompanied by its largest increase in volume in recent months. It is attempting to stabilize in this area as the stock narrows in range, but all indications are hinting at AFL at least transitioning to a sideways trend. If AFL continues to correct, the next level of primary support would be near $46.
The Bottom Line
The stock market has been on an incredible rally over the past several months and investors have been conditioned to buy all dips. While it's possible that these stocks will find support at these levels, traders should be cautious as the recent selling has taken on a sense of urgency as shown by the increase in volume. One of the most important traits for successful traders is patience, and this appears to be a time where traders are best served waiting to see if the markets can stabilize at these levels or if a test of more important support levels below is in the near future. (For related reading, check out Blending Technical and Fundamental Analysis.)
Charts courtesy of stockcharts.com
At the time of writing, Joey Fundora did not own shares in any of the companies mentioned in this article.